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TMI Blog2016 (3) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... ed against the monies refundable by the Assessee to PIPL is a matter of adjustment between the parties. That adjustment cannot be the basis to hold that PIPL has given a “ loan or advance” to the Assessee. The primarily requirement of flow of funds for use by the Assessee from PIPL is essential to say that PIPL gave “Loan or Advance” to the Assessee. Such a requirement being absent in the present case, it cannot be said that the conditions for applicability of Sec.2(22)( e) of the Act were satisfied. - Decided in favour of assessee - I.T.A No. 889/Kol/2015 - - - Dated:- 3-2-2016 - Sri N.V.Vasudevan, JM For The Appellant : Shri Anil Kochar, Advocate For The Respondent : Md.Gayas Uddin Ansari, JCIT, Sr.DR ORDER This is an appeal by the Assessee against the order dated 17.2.2015 of CIT(A)- 12, Kolkata, relating to AY 2007-08. 2. The only addition that is challenged in this appeal is the addition of ₹ 9 lacs made by the AO and confirmed by the CIT(A) invoking the provisions of Sec.2(22)(e) of the Income Tax Act, 1961. The provisions of Sec.2(22)(e) of the Act, reads as follows: Sec.2(22) dividend includes- (e) Any payment by a company, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter the 31st day of March, 1948, and before the 1st day of April, 1956. Explanation 2.-The expression accumulated profits in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place. Explanation 3.-For the purposes of this clause,- (a) concern means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company ; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern ; Section 2(32) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o their auditors at Kolkatta M/S.S.B.Dandeker Co. The staff of M/S.S.B.Dandeker Co., one Mr.Raghunandan Dutta, was handed over the aforesaid draft for deposit as advance tax payable by PIPL. He inadvertently prepared the challan in the name of the Assessee viz., Shiv Transport Travels. The Assessee was a sister concern of PIPL. 6. After this mistake was found out, the sum of ₹ 9 lacs was to be refunded to PIPL by the Assessee. The sum of ₹ 9 lacs never reached the Assessee. The Assessee had applied for refund of the sum of ₹ 9 lacs, erroneously paid in its name by PIPL and the refund is yet to be received by the Assessee from the Income tax Department. It was so stated across the bar by the learned counsel for the Assessee in the course of hearing before me. 7. In the meantime PIPL wanted the money from the Assessee. PIPL was a tenant occupying the premises owned by the Assessee. It was agreed between the Assessee and PIPL that by way of adjustment of ₹ 9 lacs payable by the Assessee to PIPL, the Assessee will adjust the annual rent of ₹ 1,08,000 payable by PIPL. As upto AY 2012-13 adjustments were made accordingly. 8. The case of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med to be dividend inasmuch as loan was not to the shareholder but to the partnership firm which was not the shareholder in the books of M/S.Jai Prakash Associates (P) Ltd. The Hon ble Court also held that it was settled principle of law that the deeming provision has to be construed strictly. The Hon ble Allahabad High Court also referred to the decision in the case of Howrah Trading Co. Ltd. vs. CIT (1959) 36 ITR 215 (SC) and CIT vs. C.P. Sarathy Mudaliar (1972) 83 ITR 170 (SC). In the later decision, s. 2(6A)(e) of the Act, 1922 was under consideration, which was synonymous to s. 2(22)(e) of the IT Act, 1961. In the said case, members of HUF acquired shares in a company with the fund of the family. Loans were granted to HUF and the question was whether the loans could be treated as dividend income of the family falling within s. 2(6A)(e) of the Act, 1922. The apex Court held that only loans advanced to shareholders could be deemed to be dividends under s. 2(6A)(e) of the Act, the HUF could not be considered to be a shareholder under s. 2(6A)(e) of the Act and hence, loans given to the HUF will not be considered as loans advanced to shareholder of the company and could not, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant's name. In my view, this declaration: is self-serving and has been made after the lapse of a long period of the date of the impugned draft. The draft was issued on 20.12.2006 and the declaration was made on 22.07.2010. Further, no documentary evidence has been furnished by the. appellant to prove the mistake as directed by the Hori'ble' Tribunal. It is also not clear as to why the appellant did not immediately return the sum to PIPL if there was a genuine human error as claimed. Further still, the Id. CIT had queried during' the proceedings u/s 263 of the Act as to when the sum of ₹ 9 lakhs was actually refunded by the appellant to PIPL to which the appellant replied that the sum was adjusted against rent receivable from PIPL by the appellant. Thus, whatever might have been the actual reason for depositing the sum of ₹ 9 lacs with RBI on behalf of the appellant, in the final analysis it assumed the character of advance payment made to the appellant and as admitted by the appellant in its reply dated 17.01.2012 to the Id.CIT, even as on 31/03/2011, the appellant's outstanding liability payable to PIPL was ₹ 2,52,000/-. In the light of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2(22)( e) of the Act were satisfied. 13. I am also of the view even otherwise the provisions of Sec.2(22)( e) of the Act are not attracted in the facts and circumstances of the present case. The case made out by the CIT(A) was that the case of the Assessee would be covered by the provisions of Sec.2(22)( e) of the Act and would within the clause Loan or Advance by a company to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) . In this regard, the CIT(A) held that the same set of persons held shares in PIPL and were also partners in the Assessee firm and therefore it was a case where loan or advance was given by PIIPL to a concern (the Assessee) in which its shareholders or partners had substantial interest. The question is when the admitted position is that the Assessee is not a shareholder of PIPL could the provisions of Sec.2(22)( e) of the Act are attracted. This question has been answered by the Special Bench of ITAT Mumbai in the case of Bhaumik Color (P) Ltd. (supra). In the aforesaid decision the Special Bench was concerned with the second limb of Sec.2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich he has a substantial interest do not say as to in whose hands the dividend has to be brought to tax, whether in the hands of the concern or the shareholder . We have already seen the divergent views on this issue which have been referred to in the earlier part of this order. 31. The above provisions were subject matter of consideration before the Hon ble Rajasthan High Court in the case of CIT Vs. Hotel Hilltop. 217 CTR 527(Raj). The facts of the case before the Hon ble Court were as follows. The Assessee was one M/S.Hotel Hilltop a partnership firm. This firm received an advance of ₹ 10 lacs from a company M/S.Hilltop palace Hotels (P) Ltd. The shareholding pattern of M/S.Hillltop Palace Hotels (P) Ltd., was as follows: 1. Shri Roop Kumar Khurana : 23.33% 2. Smt.Saroj Khurana : 4.67% 3. Vikas Khurana : 22% 4. Deshbandhu Khurana: 25% 5. Shri.Rajiv Khurana : 25% The constitution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, being shareholder. Of course, the two individuals being R and D. are the common persons, holding more than requisite amount of shareholding and are having requisite interest, in the firm, but then, thereby the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individuals, on whose behalf, or on whose individual benefit, being such shareholder, the amount is paid by the company to the concern. Thus, the significant requirement of section 2(22)(e) is not shown to exist. The liability of tax, as deemed divided, could be attracted in the hands of the individuals, being the shareholders, and not in the hands of the firm. 32. The aforesaid decision of the Hon ble Rajasthan High Court which is the only decision of High Court, should be sufficient to answer question No.2 which has been referred to the Special Bench by holding that deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder. The argument of the learned D.R. that the Hon ble Rajasthan High Court did not deal with the second limb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the shareholder and not in the hands of a non-shareholder viz., concern. A loan or advance received by a concern is not in the nature of income. In other words there is a deemed accrual of income even u/s.5(1)(b) in the hands of the shareholder only and not in the hands of the payee viz., non-shareholder (Concern). Sec.5(1)(a) contemplates that the receipt or deemed receipt should be in the nature of income. Therefore the deeming fiction can be applied only in the hands of the shareholder and not the non-shareholder viz., the concern. 37. The definition of Dividend U/s.2(22)(e) of the Act is an inclusive definition. Such inclusive definition enlarges the meaning of the term Dividend according to its ordinary and natural meaning to include even a loan or advance. Any loan or advance cannot be dividend according to its ordinary and natural meaning. The ordinary and natural meaning of the term dividend would be a share in profits to an investor in the share capital of a limited company. To the extent the meaning of the word Dividend is extended to loans and advances to a shareholder or to a concern in which a shareholder is substantially interested deeming them as Dividen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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